March Resilience: The Dollar's Anticipated Rebound Amid Fed's Hawkish Stance

Infotrading.io - In the ever-evolving landscape of foreign exchange markets, the Dollar's trajectory has become a focal point of interest. Despite its recent pullback, analysts are forecasting a robust resurgence in March, attributing this anticipated rebound to the Federal Reserve's cautious approach towards lowering interest rates.

The Dollar's weakening, which has been more pronounced despite the Federal Reserve confirming its hesitance to reduce interest rates hastily, suggests a plateau in the 'hawkish' repricing that has been pivotal in 2024. This change in trend was further cemented as the Pound to Dollar exchange rate solidified gains above 1.26. The confirmation came from the minutes of the Fed's February 1st policy meeting, which indicated that a March rate cut was unlikely. Furthermore, the probability of a 25 basis point cut by the June FOMC meeting plummeted to 90%, a stark decrease from the previously assumed 100%.

Alvin T. Tan of Royal Bank of Canada highlights a lag in the US dollar's response to the climb in U.S. interest rates since early last week. He notes that the FOMC minutes have solidified the sentiment that a Fed rate cut is not on the immediate horizon.

This shift in momentum was echoed by Pound Sterling Live's Week Ahead forecasts, which anticipated the Pound firming against the Dollar. The view was underpinned by the market's acceptance of fewer Fed rate hikes in 2024 than initially projected.

Market strategists like Quek Ser Leang from United Overseas Bank and Frances Cheung from OCBC Bank have noted a slight increase in upward momentum for GBP/USD, predicting a trading range between 1.2600 and 1.2660. Cheung also observed that the release of FOMC minutes had a subdued impact on the FX market, as most hawkish repricing had already occurred post-inflation reports.

Richard Franulovich of Westpac Bank remarks on the temporary relief enjoyed by major currencies, with the U.S. Dollar Index poised to break a 5-week winning streak. However, he cautions that a resurgence in USD strength is likely leading up to the next FOMC meeting.

This anticipated strength is partly attributed to the Dollar's reaction to major data releases and events, like the significant rally following January's inflation figures. Franulovich notes that outside these events, the Dollar has shown a consolidative trend, hinting at the retention of most of its gains in 2024, with potential fuel for another surge in the coming weeks.

In conclusion, the Dollar's current trajectory reflects a complex interplay of market expectations, Fed policies, and global economic indicators. While its recent pullback has been notable, the underlying strength, driven by a cautious Fed and significant market events, suggests a likely resurgence in the coming month.